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The Next Chapter? In 50 Words Or Less • Traditionally, Six Sigma is known as a method to uncover ways to reduce defects and cut costs. • A new version of Six Sigma can help companies make smarter decisions related to product and market strategy and create customer value. • A key element of this approach is a modified DMAIC process. by R. Eric Reidenbach six sigma Headline Deckhead goes here Six Sigma can be adapted to grow market share and In 50 Words Or Lesscreate customer value • Text for 50 words or less is Vectora Roman 9 on 11 with hanging indents. of Six Sigma—perhaps the next chapter of this popu• Text for 50 words or lar improvement method—shifts focus from reducing defects and cutting costs less is Vectora Roman 9 on 11 with to hanging growing an organization’s market share by identifying targeted products and indents. • Text for 50markets words or and creating customer value. less is Vectora Roman Some may see Six Sigma marketing (SSM) as a significant departure from tra9 on 11 with hanging indents. ditional Six Sigma and marketing approaches. It bases decisions and strategies on • Text for 50 words or less is Vectora factsRoman learned from the voice of the market (VOM), not just individual intuitions or 9 on 11 with hanging indents. agendas. It operates two elements of products/markets—things people buy and A NEW VERSION the people who buy them—that drive revenue and stock growth. 2 QP • www.qualityprogress.com March 2010 • QP 41 The approach shouldn’t be dismissed as simply ap- quantifiable market-share goals for the lowest cost. plying Six Sigma to specific marketing activities, such The approach does adopt some of Six Sigma’s tra- as sales, order processing, promotional activities or ditional goals of reducing defects. Instead of defects distribution. The method applies a unified, consistent in terms of products, however, SSM focuses on ele- treatment of the entire value creation and delivery ments that drive customer retention. Customers inter- system—not just components or elements of it—and act with an organization in many ways—for example, integrates Six Sigma’s disciplined problem-solving initial purchase inquiry, sales process, billing inquiries, approach with a customer-focused, performance per- repairs, service and parts purchase. Each interaction spective. or event can increase or decrease loyalty and market Three differences between the traditional Six Sigma and marketing approach and this new version are: share. SSM monitors these events to ensure maximum customer value. 1. Customer value replaces customer satisfaction as Finally, SSM expands the traditional purview of the driving strategic metric. Customer value has marketing to include the traditional 4Ps (price, prod- been shown to have a significantly stronger link to uct, promotion and place) and a fifth P—processes. market share and top-line revenues than customer Value is delivered to the market in many ways, but satisfaction.1 In other words, happy customers are mostly through value streams and processes. not necessarily loyal or profitable customers.2 2. A unique set of tools is used to measure value, value First, second—and third? opportunities and value-management strategies. As mentioned earlier, Six Sigma has traditionally been The tools focus on acquiring new customers, retain- used to analyze activities within organizations. Some ing current ones and providing incentives for cur- have described the first generation of Six Sigma as fo- rent ones to repurchase, sign new contracts and up- cusing on defect reductions and the second generation grade. These are the three drivers of market share. on cost-cutting efforts.4 Many Black Belts, however, 3. A modified define, measure, analyze, improve and are concerned with the finite nature of Six Sigma proj- control (DMAIC) model is used to accommodate ects and how cost-cutting activities are limited in the the different arena in which SSM operates. Tradi- extent to which they create real customer value and tionally, Six Sigma has focused on internal aspects actually grow an organization. of organizational activities. SSM focuses on the ex- “Six Sigma will need to be adapted to marketing to terior: the market and the dynamics that drive mar- account for increases in top-line revenues—sales in- ket changes. creases, customer acquisition and customer loyalty— Often, marketing plans are based on intuition and rather than being so singularly focused on cost cutting. agendas, eventually falling short of goals. For instance, Its value should be measured not only by how much it is estimated that many marketing actions have an it can save a company, but also in how much it can average return on investment (ROI) of 58%. The new earn a company,” said Renee Brandon, a marketing re- version is designed to achieve both effectiveness and searcher and consultant.5 3 efficiency. In other words, it seeks to achieve specific, There is nothing inherent within the internally focused Six Sigma, however, that will allow it to transcend to the next generation of Six Sigma. The step Product/market matrix / Figure 1 from reducing defects to cutting costs is minor compared to the leap from cutting costs to growing market share. Different mind-sets, tools and cultures gov- Market Market Product Product A Market A Market B Market C Market D Total ern each generation of Six Sigma. The integration of marketing and its focus on markets, customers and market share could provide an established organiza- Product B tional bridge for moving to the next generation of Six Product C Sigma—SSM. Total Sigma. Instead of phasing out their deployments, tran- Many firms have already invested heavily in Six 42 QP • www.qualityprogress.com six sigma tunity to increase their ROI. SSM can offer an infinite number of projects as the organization reacts to changing market dynamics. Much of the impetus for this new approach comes from the disappointing results of current marketing practices and impatient CEOs who aren’t convinced Value model / Figure 2 Customer focus 0.394 Technical 0.361 competence CQI marketing spending makes a difference. Traditional marketing, too, has come under attack by many who view it as a cost instead of a revenue generator.6 The Product features 0.148 0.675 Image new SSM approach is the answer to making marketing more effective and efficient. Billing 0.096 used in this new approach, along with brief descrip- Price Managerial component Define: In the traditional version of Six Sigma, this 0.164 Explanatory component Adjusted R2 = 0.87 tions of key tools that make each stage operational. stage focuses on clarifying the goals and value of a 0.100 0.256 Modified DMAIC Here are the stages of the modified DMAIC process 0.736 Value sitioning to this next generation offers firms the oppor- CQI = customer quality index specific project. It has a predetermined value stream or process. In the modified process, the define stage • Margins within the product line and market. begins with determining the specific market opportu- • Future downstream product support revenues nities for growing the business. These are the specific competitive arenas the organization can choose to (parts and repairs). • Synergies with other products and markets. target. At this point, a specific project hasn’t been se- Each product/market can be evaluated using the lected yet because the entire SSM process is informed same subset of the above criteria. This ensures a con- by the market. sistent evaluation process, which becomes the first The modified define stage begins by identifying and prioritizing those products and markets that offer the step in developing a competitive strategy for the organization. organization the greatest opportunities for growth. The In the end, it will be the VOM that drives decisions principal tool is the product/market matrix in Figure 1. and identifies which people, products or processes The matrix juxtaposes the two elements that drive should be targeted for enhanced value delivery. revenues: the products and the people who buy them. Measure: This stage is focused on defining value The intersection of products and markets represents a for the targeted markets identified in the define stage. competitive arena with varying revenue opportunities The principal tool for this phase is the competitive in which the firm can choose to compete. value model that captures the VOM. Some areas could provide high economic return, The value model is the information platform that while others could be a potential drag. Identifying those drives SSM, providing an uninterrupted flow of infor- areas is critical. The opportunities must be evaluated us- mation from the targeted products/markets to subse- ing a quantifiable approach, not just guessing, formulat- quent stages of the DMAIC process. It captures the ing agendas or basing decisions on what the company VOM, ensuring subsequent changes are directed by the has done in the past. Quantifying opportunities requires contingencies of the specific product/market. A value choosing a set of strategic criteria, including: model for a business-to-business wireless telecom firm • Market share (current versus potential growth). operating in large metro markets is shown in Figure 2. • Current size of the market. The value model performs two important func- • Market growth rates. tions. First, the explanatory component quantifies the • Competitive intensity. tradeoff between quality and price, based on how the • Lost sales within a product line and market. market identifies this tradeoff. In the example, quality March 2010 • QP 43 Competitive value matrix / Figure 3 1.2 Expensive relationship (customer quality index, or CQI) is more than four times as important as price in defining value for the products and the market (0.736 vs. 0.164). This eliminates much Outstanding value of the argument about which is more important to the market—quality or price. AT&T (strategic target) Second, in the managerial component, the model iden- Customer quality index tifies and prioritizes the critical-to-quality (CTQ) factors that drive the value equation and motivate buyers. The Value gap CTQs are customer focus (0.394), technical competence XYZ (0.361), product features (0.148) and billing (0.096). The Nextel Sprint Cingular Verizon 1.0 Alltel CTQ weights indicate their relative importance to quality. Without this actionable information, few marketing efforts can satisfy either the effectiveness or efficiency criteria critical to SSM efforts. T-Mobile Analyze: The modified analyze stage requires learning and applying new tools designed to capture and use the market’s perception of value. For instance: • The competitive value matrix. Figure 3 depicts the value propositions of one organization (XYZ) and its 0.8 0.8 Poor value major competitors. In this example, AT&T has a value Discount relationship 1.0 Price evaluation advantage over its competitors within this product/ 1.2 market. Its strategic challenge is to increase this gap by enhancing its quality and value leadership, thus increasing market share. XYZ’s challenge is to close the Competitive vulnerability matrix / Figure 4 1.2 Expensive relationship gap with the value leader. Improving performance on the CTQs and pricing elements are keys to managing the value gap. • The competitive vulnerability matrix. Figure 4 Outstanding value Outstanding 1 identifies the nature and degree of one competitor’s value offering, as well as its strengths and weakness- 25% es. The competitive vulnerability matrix is similar to the value matrix, except that instead of locating firms Customer quality index on the matrix, it identifies groups of a competitor’s customers (in this case, AT&T’s). 33% Outstanding 2 The circles identify the percentage of customers having certain perceptions of value they receive from AT&T. In this case, 58% receive outstanding value, leaving only 42% receiving less-than-outstanding val- Poor value 4 ue. Each customer group can be profiled by its CTQ 18% 18% Poor value 3 performance score, reactions to pricing policies, size, geographic location and revenues. This allows a competitor to target groups or individual firms for acquisi- 6% Poor value 5 0.8 0.8 Poor value tion. Discount relationship 1.2 Price satisfaction Note: Numbers correspond to the different value groups. 44 QP • www.qualityprogress.com • The customer loyalty matrix. Figure 5 captures the nature and degree of loyalty of an organization’s customer base. Market-share gains depend heavily on the organization’s ability to retain its customer base. Similar to the previous two tools, this matrix plots groups six sigma Customer loyalty matrix / Figure 5 of an organization’s customers in terms of the value they receive from the organization. In Figure 5, only 33% of XYZ’s customer base re- 1.8 Expensive relationship ceives outstanding value. These are the most loyal Outstanding value customers, who are least likely to leave, more likely to recommend and more likely to repurchase or upgrade. The remaining 67% of XYZ’s customer base is less loyal Customer quality index and more susceptible to accept a competitor’s superior value offering. Each group can be profiled to identify any systematic people, product or process problems. In addition, groups can be profiled in terms of their economic importance to the organization for the purpose of individual intervention if the situation warrants it. These three tools provide an analysis of the value Outstanding value 33% Poor value 3 13% landscape within each product and market. They can Average value 41% Poor value 2 7% Poor value 1 6% provide the basis for identifying how changes in people, product and processes will enhance the organization’s competitive value proposition. These value tools are designed to aid in the growth of market share and Poor value 0.3 0.3 top line revenues. Improve: This stage involves mapping targeted Discount relationship 1.8 Price satisfaction processes within specific value streams to improve value disadvantages or enhance value advantages. Some In addition, the improve stage uncovers issues re- value streams and processes will need to be improved lated to people and products that can be improved or to close the value gap that exists between an organiza- leveraged. Principal tools in this stage are a modified tion and its competitor. Processes that drive and sup- cause and effect matrix, as shown in Figure 6, and val- port a value advantage, however, should be enhanced. ue stream mapping. In other words, this is about leveraging strengths and For SSM, the key difference between value streams the complete opposite of the saying, “If it ain’t broke, and processes is the involvement of the customer—the don’t fix it.” end user. Value streams begin with a customer request Responsive to service needs Delivering above and beyond expectations Reps communicating positive attitude Reps making prompt changes Reps resolving problems After the sale, resolving problems the first time Reps accurately representing products Reps providing clear explanations Reps providing timely training After the sale, reaching the right person After the sale, easy to do business Providing business solutions Understanding your needs Proactively communicating new products Providing easy access to product—retail 0.82 0.79 0.72 0.69 0.69 0.82 0.82 0.75 0.72 0.78 0.86 0.79 0.80 0.65 0.45 0.72 Sales 6 3 6 9 3 3 0 9 9 0 0 0 9 9 9 6 57 Delivery 3 3 6 3 0 0 0 0 0 0 3 3 0 0 0 0 16.2 Training 3 0 6 3 0 0 0 3 9 9 3 6 9 9 3 0 46.3 Invoicing 3 0 3 0 0 6 6 0 0 0 6 6 3 6 0 0 30.7 Attribute importance Process importance Valued business partner Cause and effect matrix / Figure 6 March 2010 • QP 45 six sigma Six Sigma marketing seeks to achieve specific, quantifiable market-share goals for the lowest cost. and end with the customer receiving something of value. tions—sales, delivery, repair, parts purchasing—can The cause and effect matrix links individual attri- warn of potential problems that might be customer- butes that comprise a CTQ (Ys) and the processes that specific or systemic in nature. impact them (Xs). The attributes are the performance metrics that comprise the CTQ. In this case, the most Time to transform important CTQ attribute is customer focus. The chal- As CEOs demand more effectiveness and efficiency lenge is to identify processes that have the greatest im- from their marketing dollars, and today’s Six Sigma pact on improving the performance of these attributes. practitioners seek new areas in which to improve their For example, across the top of the cause and ef- organization’s performance, SSM can play an integral fect matrix in Figure 6 (p. 45) are individual customer- role. Its strategic, market-driven approach offers a way focus attributes. Attribute importance is shown in the for many organizations focused on simply improving first row. The individual processes that make up the their internal operations to shift gears and look out- customer-focus value stream are shown in the first ward to become stronger and more competitive. column. The individual cells contain estimates of the process impacts on the attributes made by the team. Competitive forces, faster innovation cycles, cost constraints, increasingly sophisticated customers de- In this example, 0 signifies no impact, 3 signifies manding greater value, and changing regulatory and minimum impact, 6 signifies moderate impact, and 9 legislative pressures are just a few factors that will signifies strong impact. Process importance (the far- force these organizations to transform themselves and right column) is the sum of the weighted impacts on become more market oriented. SSM can be the vehicle each process (that is, [6 x 0.82] + [3 x 0.79] + [6 x 0.72], to drive this transformation. QP including all 16 columns of customer-focus attributes). The sales process (57) has the biggest impact on customer focus; therefore, the sales process should be EDITOR’S NOTE This article is based on an excerpt from Reidenbach’s Six Sigma Marketing: From Cutting Costs to Growing Market Share, ASQ Quality Press, 2009. the focus of change. Control: This stage focuses on two factors: 1. After changes have been made to the value-delivery system, SSM requires these changes be monitored to ensure they are working. This is done with an abbreviated customer value analysis questionnaire used to develop the customer value model. It’s an inexpensive way to track and monitor issues that may arise, and if there are significant changes, a full REFERENCES 1.Bradley T. Gale, Managing Customer Value: Creating Quality and Service That Customers Can See, The Free Press, 1994. 2.Frederick Reichheld, “The One Number You Need to Grow,” Harvard Business Review, Dec. 1-11, 2003. 3.Renee Brandon, “The Power of Six Sigma and Marketing: Increased Marketing Effectiveness,” white paper, Aug. 8, 2006, www.tocquigny.com. 4.Dirk Dusharme, “Quality Conversations with Mikel Harry,” Quality Digest, www.qualitydigest.com/feb04/articles/06_article.shtml. 5.Brandon, “The Power of Six Sigma and Marketing: Increased Marketing Effectiveness, see reference 3, p. 6. 6.Yvonne Tocquigny, “The Quest for Quality: Applying Six Sigma Principles to Marketing,” white paper, Nov. 2, 2005, www.tocquigny.com. survey can identify the issues more clearly. 2. The multitude of customer interactions that take place—which can represent an early warning sys- BIBLIOGRAPHY Pestorius, Michael, Applying the Science of Six Sigma to the Art of Marketing, ASQ Quality Press, 2007. tem regarding value performance—must be tracked and monitored. Think of these interactions as rivets on an airplane’s wing. The integrity of the wing and aircraft can be maintained with the loss of a few rivets. As more rivets fail, however, the probability of a complete failure of the wing and plane increases. Monitoring customer interactions and transac46 QP • www.qualityprogress.com R. ERIC REIDENBACH is the director of the Six Sigma Marketing Institute in Hattiesburg, MS. He received a doctorate in marketing from Michigan State University in East Lansing.